Finland Shows Why Many Europeans Think Americans Are Wrong About the Euro

Like Greece, it is geographically far from the core Western European powers of Britain, France and Germany. And like Greece, it uses the euro currency. But unlike Greece, it is a model of sound governance and responsible use of debt.

A number of American commentators have looked at Finland’s current economic troubles as a clear sign that what ails the eurozone is far deeper than profligate spending by the Greeks. Paul Krugman has made that case at The New York Times, Tim Worstall at Forbes and Matt O’Brien at The Washington Post.

Alexander Stubb, the Finnish finance minister, thinks they’re wrong. I brought this up with him Sunday at a waterside restaurant in Espoo, the Helsinki suburb where he lives. His comments — a vigorous defense of what the euro has done for Finland — help explain why elite opinion about the euro is so different on the two sides of the Atlantic.

There are three main causes of Finland’s economic weakness. Nokia has gone from the world’s largest mobile phone maker to an afterthought, costing thousands of Finnish jobs and many more when its supply network is counted. Demand for paper, another major export, has fallen. And the economy of neighboring Russia, with which Finland has deep trade ties, has collapsed because of plummeting oil prices and Western sanctions.

Because Finland has used the euro since its inception, the value of its currency cannot adjust in ways that would cushion the overall Finnish economy from those shocks. If Finland still had its old currency, the markka, it would have fallen in value on international markets. Suddenly other Finnish industries would have had a huge cost advantage over, say, German competitors, and they would have grown and created the jobs to help make up for those lost because of Nokia and the paper industry and Russian trade.

“Rubbish,” Mr. Stubb said. To evaluate the euro, you can’t just look at what he calls a current “rough patch” for the Finnish economy. You have to look at a longer time horizon. In his telling, the integration with Western Europe — of which the euro currency is a crucial element — deepened trade and diplomatic relations, making Finland both more powerful on the world stage and its industries better connected to the rest of the global economy. That made its people richer.

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Finland's finance minister, Alexander Stubb, says you have to look at a longer time horizon to evaluate the euro.CreditOlivier Hoslet/European Pressphoto Agency

“In the early 1990s in the middle of a Finnish banking crisis and economic depression, we were a top 30 country in the world in per capita G.D.P.,” he said. “Then we opened up; we became members of the E.U. Now we’re always up there in G.D.P. per capita or whatever other measure you look at with Sweden, Denmark, Australia and Canada.”

As to whether the ability to devalue its currency would help deal with the current economic downturn, Mr. Stubb is similarly skeptical. “Devaluation is a little like doping in sports,” he said. “It gives you perhaps a short-term boost, but in the long run, it’s not beneficial. Just like anyone else, we need structural reform, structural adjustment; we need to increase our competitiveness, and a little bit of luck.”

Looking at the numbers, does Mr. Stubb have a point? It really is the case that Finland was an astounding success story from the time it joined the euro to the onset of the global financial crisis. Its inflation-adjusted per-capita G.D.P. rose 33 percent from 1998 to 2008, compared with 17 percent in both Germany and the United States.

It is also the case that the last several years have been harder on Finland than on other advanced economies, with real per-capita G.D.P. having fallen 8 percent from 2008 to 2014 (Germany is up 5 percent; the United States is up 4 percent).

So just as the Finland story from 1998 to 2008 is something wonderful to behold, it has also underperformed other advanced economies badly since the crisis. Being locked in a currency with larger and economically stronger Germany probably is an important part of the reason.

Of course, correlation is not causation. Maybe the Finnish economy did so well from 1998 to 2008 not because of the euro and broader European integration, but because it was a well-governed nation with industrious workers that was poised to rise to the top of the league tables of global income regardless. This is in the realm of things that are hard to prove in any definitive way, but the case that the euro was crucial isn’t without merit.

At the same time, you can see in the debate over the Finnish economy a broader divide between the American thinking about economics and how European leaders process their continent’s economic woes.

The Europeans are thinking about the long run, and what the euro and the broader integration it symbolizes will do for Europe’s potential. Many of us who write about economics every day are looking at the cyclical ups and downs, and want to see policies that are effective at smoothing them out.

The euro has not shown itself to be very good at helping the economies that use it stay on an even keel. Whether it has been good at driving long-term growth is a more subjective judgment. The answer may depend on whether the vantage point is an office in Washington or New York, or a waterside restaurant in Espoo.

Correction:

An earlier version of this article gave incorrect figures for inflation-adjusted per-capita G.D.P. growth from 1998 to 2008 in Germany and the United States. It was 17 percent in both countries, not 23 and 21 percent.